Abstract
The phenomenon of partial privatization at the local level, which characterizes many local governments in Italy and Europe has been subject to many studies, but none have tried to model what this could imply for the choice of the optimal regulatory rule, nor for the vertical allocation of regulatory tasks among the various levels of government. We first consider the case in which a benevolent regulator—at the central or local level—chooses the cost reimbursement rule, and then we will briefly evaluate what happens with a partisan regulator. Under centralized regulation the internalization of spillover effects on the citizens is possible, while the decentralized regulator better ’internalizes’ the incentives of the shareholders, partially solving the multiprincipal problem, and this effect is present even with partisan planner. What emerges is that the application of the subsidiarity principle under local partial privatization has a beneficial effect on regulation, thanks to increased cooperation.
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